Gujarat Fluorochemicals outperforms within fluorochem peer group

The growing application of fluorinated organic compounds across multiple sectors including pharma, agrochemical, refrigerants, EV batteries etc has led to significant re-rating of fluorinated chemical companies. According to DAM Capital, top 3 Indian fluorochemical players i.e. Gujarat Fluorochemicals Ltd (GFL), SRF Ltd (SRF) and Navin Fluorine International Ltd (NFIL) have outperformed specialty chemical peers like Aarti Ltd and Atul Ltd in market returns. In the last 6 months, GFL stock price has moved up by 36% clearly outperforming NFIL that gave a return of 15% and SRF that declined by 6% . DAM Capital has a Buy rating on all three names with GFL > SRF > NFIL being the preferred pecking order.

While these 3 fluorochemical companies have a common base in terms of fluorination chemistry, they have a differentiated business model. GFL has focussed on Fluoropolymers (FPs) like PTFE and new FPs. That puts GFL in an advantageous position as the company will be able to capitalize on increasing opportunities arising from new age technologies like EV, Solar, 5G etc through growing demand for PVDF, new FPs and battery chemicals.

NFIL has opted to focus on producing fluoro-based intermediates / APIs for agri / pharma applications. On the other hand, SRF has created significantly diversified business model with focus on Ref Gas and fluoro-based intermediates /APIs along with packaging and technical textiles. With respect to peers, SRF’s PTFE capacity is expected to come on stream by Dec’22 and NFIL has not yet guided for any investment under FPs segment. So, currently GFL is the only Indian producer of FPs competing mainly with China players like Chemours, Solvay, 3M, Arkema, etc.

GFL’s management has also indicated that majority of its future capex would be directed towards the FPs and battery chemicals. Management guided for Rs2,500 Cr capex for next 2 years and further Rs4500-6000 Cr capex for next 3 years (primarily towards battery chemicals and PVDF) largely funded through internal accruals.

DAM Capital sees significant upside possibilities for GFL within the fluorochem peer group. NFIL is unlikely to generate any meaningful upsides to current street estimates over the near term. SRF’s aggressive growth investments in fluorospeciality and refrigerant gas also have the potential to generate earnings surprises.